THE SKEPTIC: Pennies Saved Are Providence For Insurers
28 Jan 08:57
By Catherine Taylor and Brian Truscott
A DOW JONES NEWSWIRES COLUMN
LONDON (Dow Jones)--The FTSE 100 fell 26% last year and is down more than 50%
from its 1999 dotcom-inspired high - so why did U.K. insurers and their
equity-linked long-term savings business do so well in 2002?
Why didn't a tumbling market and the widespread perception that the assurance
sector is trudging through a valley of doom and gloom take the stuffing out of
sales?
In fact, Friends Provident's (U.FP) life and pension sales index rose 10%,
which is better than market expectations. Better still, the insurer said
Tuesday that the fourth quarter was its best ever, with new sales up 6% to
GBP103 million, thanks in part to such new acquisitions as Royal & Sun's
(U.RSA) fund management assets. A newfound focus on the corporate pensions
segment didn't hurt, either.
Aviva PLC (U.AV), Prudential PLC (PUK) and Legal & General Group PLC (U.LGG)
have also reported similarly resilient sales.
So what's going on?
Well, at the moment, when people look in their wallets, the picture looks
quite different from the bleak landscape of stock markets and global economies.
It's no secret consumer spending hasn't fallen off a cliff. With unemployment
and interest rates remaining low, people would be forgiven for thinking things
aren't so bad. In other words, their personal wealth, their income and their
ability to pay down mortgages and debt look good.
At the same time, the equity spin-meisters have done a good job of selling
long-term market investment as a much-needed salve for retirement savings
concerns. And the insurers can offer a product for every level of risk
appetite. For those who eschew full exposure to volatile stock markets, there's
the option to buy traditional "with-profits" products, which offer
policyholders an element of protection from falls in share prices.
It must be said that froma company's point of view, the situation is less
rosy, because the government has ramped up taxes to the point where GDP doesn't
flow to EPS in the same fashionable ratio that it managed to do, say, five
years ago. Still, in terms of the standard of living and the weight of all
those pounds in people's pockets, they're actually better off. And with
headlines every day about companies closing down pension schemes, they know
there is a need to save for that rainy day.
So that's what they've done. And the upshot is a phenomenon where life
assurers benefit from this propensity to save.
Now, Friends is perfectly sensible in being cautious about what trials and
travails are in store for 2003, but in general, life assurers' fundamentals
appear healthy.
More important, if markets turn upward this year, insurers' assets will
appreciate. It would come as no surprise then, if, a year from now, earnings -
and, by the same measure, stocks - are higher this time next Christmas,
especially if the Iraqi situation is clarified.
If so, that would clearly be a friendly and providential situation.
-By Catherine Taylor and Brian Truscott, Dow Jones Newswires;
44-20-7842-9289; brian.truscott@dowjones.com
(END) Dow Jones Newswires
01-28-03 0857ET |
